Performance Metrics & Benchmarks

Performance Metrics & Benchmarks

One of the most critical aspects of executive compensation is designating the metrics used to define and benchmark performance. The relationship between compensation and performance has increasing significance and greater validity with stronger definition of performance measures. More importantly, the correlation between performance outcome and corresponding incentive compensation award is more easily established with more specific performance metrics. Performance metrics also need adaptability, adjusting to the issues, economic circumstances and risks that impact markets and the company.

CEL has had vast experience with performance metrics in both private and public company environments. Performance metrics must not only be fair, their measurement and corresponding potential compensation award should be agreed upon between the executive and Board of Directors/Owners, in order for an incentive compensation program to be creditable. Absolute and relative performance (vs. a peer group) measurement is an ideal structure but usually can be established only with public companies. Defining performance metrics and benchmarks for achievement is a process and analysis which may best be developed and implemented with the assistance of CEL experts.